Everyone should have health insurance coverage and access to health care. Is Bernie Sanders’s Medicare for All proposal the best way for the United States to achieve that? In his lead essay on the topic, Michael Cannon answers an emphatic no. His answer emphasizes three major themes. First, he argues that no country as vast as the United States limits the availability of private insurance, centrally controls health prices and provision, and provides health insurance coverage to its entire population. Second, he argues that it’s farfetched to expect large savings from replacing private insurance and Medicaid with federally managed public insurance given the government’s long track record of failure at managing Medicare. Finally, he argues that formally acknowledging health care as a right would limit access, worsen quality, and strip away Americans’ rights to seek their own care or coverage outside the monopolist Medicare for All system.
The first two points that Cannon raises are simple matters of fact. The scale of the U.S. system swamps other countries’ systems. Of course, Sanders’s supporters point to the scale as a feature, not a bug, with large potential for savings through lower administrative costs and paying less to providers. And scope itself is not destiny. After all, even small Vermont’s single-payer experiment failed to launch under the weight of its costs.
We agree with Cannon’s second point: across the history of Medicare, the U.S. government has never been able to implement and stick with value-enhancing reforms when they threaten special-interest groups. To adapt the Chicago Cubs’ unofficial motto, “anyone can have a bad half century.” This is a record to run from, not to run on.
Cannon’s third point is a grim prophecy. Imposing one-size-fits-all coverage, shifting all pricing decisions and costs to the federal government, and prohibiting any outside option will harm Americans’ finances and freedoms with nothing to show for it in terms of health.
About those cost savings. With the federal government fully financing our health care system, politicians have incentive to shift away from on-the-books budgetary costs to off-the-books but very real expenses. Headlining these costs is at least an additional $600 billion per year needed to finance the budgeted $2 trillion per year due to the economic drag caused by the excess burden of taxation. There are also palpable costs to individuals. Rather than paying through patient cost sharing, which is banned under Sanders’s plan, people would pay in the form of fewer services and lower intensity of treatment per encounter. These costs are direct consequences of the proposed slashes in providers’ payments and the need for draconian supply rationing to limit overuse in the absence of patient cost sharing. As documented in Japan and Canada, these policies result in more delays, more visits to resolve health problems, and lower productivity.
Medicare’s payment rules already substantially shape how health care is delivered in the United States. For example, in 2009 Medicare cut payments to independent cardiologists for some common tests but left untouched their payment for cardiologists employed by hospitals. Subsequently, for some imaging services Medicare paid hospitals nearly twice as much as they paid independent physicians for the same service. The effects were predictable. The percent of cardiologists employed by hospitals rocketed up; people received much more cardiac imaging from hospital outpatient departments and less from freestanding physician offices. In a system without any other source of insurance, traditional Medicare’s current designation as the 800-pound gorilla in the U.S. health care system would be replaced with a 5,000-pound elephant seal.
While proponents view the heft of Medicare for All as an asset, it amplifies the effects and risks of three insurmountable problems that Cannon raises. First, there is no single best way to pay healthcare providers. Each system, whether fee-for-service, prospective payment, capitation, or salary for physicians, creates distortions between what is financially best for providers and what is best for us as patients. Any payment method must cover providers’ fixed costs for them to remain open, but any method that pays above marginal costs will give providers incentive to overtreat. Any method that pays below marginal costs, such as capitation, gives them reason to withhold treatment. In our current system, providers offered government prices below their marginal costs can refuse to participate in the program, or they can eat the losses if their margins from private payers are large enough to keep them afloat. Under Medicare for All, providers would have no other patients or payers to turn to, forcing them to exit the market altogether.
In the current U.S. system, non-Medicare insurers rely on a range of blended Goldilocks solutions. In fact, the popular private insurers known as Medicare Advantage plans are set apart from traditional Medicare precisely by their flexibility to set payment methods and levels and their ability to exclude certain providers. This has allowed Medicare Advantage plans to drive up value, improving coverage and outcomes beyond traditional Medicare. And people have responded. Over one third of Americans age 65+ have opted out of traditional Medicare and into these private plans, including those with chronic conditions such as diabetes, schizophrenia, and lupus, for whom tailored Special Needs Plans are available. Similar dynamics play out in private markets, Medicaid, and many systems around the world. Under Sanders’s proposal, those plans are illegal. There would be no customization of coverage, no ability to exclude providers, and no possibility for us to vote with our feet and seek care and coverage from models that bring us more value.
A second problem is how to set the right relative price levels for various health care providers, technologies, and services. Cannon notes that many observers believe that Medicare currently overpays specialist physicians and underpays primary care physicians. Medicare already attempted to resolve this problem with its shift to the payment system known as RBRVS nearly three decades ago. What happened? The government abdicated ownership of the coding system and price setting decisions to the American Medical Association. The group tasked with setting relative prices for each service was controlled by the specialists’ organizations, who tipped the scales in their favor. RBRVS, despite its stated objectives, became a system by which the rich got richer.
Under a market system, the prices negotiated with providers result from supply and demand. These prices act as powerful signals to providers about which markets to enter, which services to provide, how many hours to work, whether specialty training programs are worth the extra years, and which potential technologies risk capital and time researching and developing. Market prices also steer buyers, for example by reducing demand where prices are high due to limited supply. While these mechanisms are imperfect, they embed safety valves and self-correction. They not only protect and benefit those in the private market but also serve as guardrails for Medicare’s price-setting decisions. Under Sanders’s proposed system, these guardrails of supply and demand are stripped away and replaced by unilateral decisions made by the government monopsonist. As Cannon makes clear, our history has shown that these governing agencies systematically favor special interests. And no matter how brilliant and benevolent their technocrats, they will not have access to the wisdom embedded in market signals.
A third problem Cannon raises is the erosion of individual liberties. With the entire U.S. health care system financed through the federal government, the government has a controlling interest in any of our choices that might affect our health care spending. Even under our current system, the externalities of health care costs are used as a rationale for various government interventions, such as motorcycle helmet laws and the Affordable Care Act’s experiments to “bend the cost curve.” Rightly or wrongly, the current pandemic’s health care utilization externalities have been used by governments across the United States to justify making it illegal to work or to leave our homes in many circumstances, even to surf in the ocean. Applying C. S. Lewis’s insights, the government’s power of the purse under Medicare for All gives justification for a system of “omnipotent moral busybodies… who torment us for our own good … without end…. To be ‘cured’ against one’s will and cured of states which we may not regard as disease is to be put on a level of … domestic animals.”
Suppose that we were willing to swallow the economic losses of Sanders’s policy, cede control to special interests and technocrats, give government greater reason to intervene on our individual decisions ,and eliminate all alternatives if it would lead to better and more equal health outcomes. Would the proposed Medicare for All plan achieve this? Experience says no. As countries expand their governments’ involvement in health care, they do not benefit from longer life expectancy on average, nor do they achieve any greater equality in life expectancy within the country.
For all of the amplified risks and problems, there’s little upside from this version of universal coverage. In the ongoing conversations about health care reform, we hear concerns about high and growing out-of-pocket costs and concerns about people slipping through the gaps in our system and facing reclassification risk due to pre-existing conditions. We share these concerns and the values underlying them. It is precisely these values, combined with our perspectives as economists and analysts of health care systems, that motivate our objections to Medicare for All.